Demand in the expanding and increasingly influential insurance-linked securities (ILS) market remains strong, and as the space grows, capital markets-backed capacity will cover more of the re/insurance industry’s losses from major events, according to Greg Reisner, a Director at international ratings agency, A.M. Best.
Speaking with A.M. BestTV at Artemis’ second New York City ILS event held in Manhattan in early February, 2018, Reisner said the market responded well to what was the first big, real test for convergence capacity.

Echoing the views of many insurance, reinsurance and ILS market participants and observers following the impressive response of the investor base in the aftermath of one of the costliest catastrophe loss years on record, Reisner said that “without a doubt,” ILS capital is here to stay.

And despite the losses experienced recently, “demand remains strong in the ILS space, and I think overtime we are going to continue to see convergence capital come into this market, and property cat risk will continue to go to that segment of the market,” said Reisner.

Although expected to expand its remit, the ILS sector remains very focused on the property catastrophe arena, particularly in the U.S., and market commentary suggests that this remains the case despite the losses experienced in 2017.

In fact, and as highlighted by Reisner, the volume of convergence capital today is actually higher than it was before the losses, further cementing the permanence of the investor and sponsor base as well as the maturity and sophistication of an asset class still widely viewed as niche.

Reisner, continued; “And I think what ILS is doing also, it’s driving a certain efficiency. They’re trying to find more innovative ways to match their capital with the risk. And overtime, when you step back and you put the business aside, so to speak, for the buyer of protection, ultimately more of their premium dollars will cover losses, which I think ultimately is a benefit for the industry.”

Ever since alternative, or third-party reinsurance capital really started to influence the reinsurance sector and grow its share of the overall marketplace, its claims paying ability has been questioned, a trend partly driven by the benign loss experience of recent years and subsequent lack of a test.

However, the response of the ILS sector to the extremely active 2017 Atlantic hurricane season, California wildfires, Mexico earthquakes and to other notable loss events in 2017, shows that capital markets investors are both willing and able to pay claims, while remaining attracted and understanding of the re/insurance risk landscape.